World Bank shows no coal hand, will other public banks follow suit?

With the EIB set to approve a new energy lending policy and the EBRD presenting its new energy strategy, the timely signal sent by the World Bank on the need to quit coal can factor importantly in discussions taking place right now at the European public banks, writes Kuba Gogolewski.

Kuba Gogolewski is an energy campaigner at CEE Bankwatch Network, an NGO monitoring European public finance.

The growing movement to end public subsidies for fossil fuels received a boost on 16 July, when the World Bank concluded a protracted three year review of its energy strategy by publishing its new Energy Sector Directions, announcing that the bank would limit financing for coal projects, the dirtiest of all fossil fuels, only to “rare circumstances”.

The World Bank becomes the first of three international financial institutions – ahead of its counterparts at the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) – to heed the call from EU Commissioner for Climate Action Connie Hedegaard to join with EU and OECD partners to take a lead role in eliminating public support for fossil fuels.

Although the World Bank hasn’t funded a major coal project since providing South Africa with a $3 billion loan in 2010 to build a massive power plant near Johannesburg, the importance of the World Bank’s move is its political message, demonstrating that where there is a will, there is a way for major public lenders to quit coal and move toward cleaner sources of energy.

Plaudits for the new energy strategy rolled in from across the web. The secretariat for the UN climate change convention tweeted:

Important step in the right direction to #EndFossilFuelSubsidies: @WorldBank to limit financing of coal-fired plants http://reut.rs/14aVsv2

But how big of an impact can this decision of the World Bank have outside of the scope of activities of this institution?

In a word: Huge. The spill-over effect on the reviews of the energy policies at the EIB and EBRD could be significant. Together the three institutions command roughly €160 billion in lending to the energy sector and have been responsible for nearly $37 billion in coal finance over the last five years.

With the EIB set to approve a new energy lending policy Tuesday (23 July) and the EBRD presenting its new energy strategy at a kick-off event in London on Thursday (25 July), the timely signal sent by the World Bank on the need to quit coal can factor importantly in discussions taking place right now at the European public banks.

The largest of the three banks – and owned and operated by EU member states – the EIB has a number of contentious issues to tackle next week before approving its new energy strategy.

The draft of the policy, published last month, does tighten lending conditions for all types of fossil fuel projects by introducing an Emission Performance Standard (EPS) of 500 gCO2/kWh, which effectively eliminates most coal plants. It is also asking for full compliance with recent EU Directives concerning pollution coming from large industrial installations.

Nevertheless, a few giant loopholes exist at the moment in the draft: the standards above can be omitted in cases in which “a plant contributes to the security of supply” within the EU or when “it contributes to poverty alleviation and economic development” outside of the EU. These vague criteria could allow practically any coal project to sneak in on the bank’s portfolio.

Up until the vote next week, the EIB still has time to close these loopholes and prove that it is sincere in its stated goal of supporting decarbonisation.

And, just as the World Bank decision can positively impact the policies of the two European public lenders, an improved EIB text can augment the energy lending review process at the EBRD. The EU is, after all, on the board of the EBRD, alongside the US.

To be sure, in recent years the EIB has been more diligent in cleaning up its energy portfolio than the EBRD. The latter has financed a number of coal mining project and is keeping a watchful on eye on plans for coal plants across the Balkans, most recently announcing its interest to support the Kosovo C lignite plant near Pristina.

The EBRD too must clean up its act, otherwise it will end up hanging like a heavy stone on the necks of the EU and the US, no matter how much progress is made elsewhere by governments and the other international financial institutions.

Ideally the World Bank decision this week is the first domino in a series of wise decisions next week, beginning with the EIB and then at the EBRD. Such a course of action is essential if trust in a global common struggle against climate change is to be kept alive and if Europe is to maintain its role as one of the leaders in the fight.

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